India Proposes A New Foreign Investment Framework: Key Changes Under The Draft Foreign Investment Rules, 2026

1. INTRODUCTION

The Reserve Bank of India (“RBI”) has released the draft Foreign Exchange Management (Foreign Investment) Rules, 2026 (“Draft Rules”) for public consultation. The Draft Rules propose to replace the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”), which presently form the principal framework governing foreign investment in India.

The Draft Rules follow the announcement in the Union Budget 2026 - 27 for a comprehensive review of the NDI Rules and propose a significantly simplified and principle-based foreign investment regime.

The changes are not limited to consolidation of the existing provisions. The Draft Rules propose to replace the concept of investment in “non-debt instruments” with a framework centred on investment in “equity”; introduce an “eligible investee entity” and a “foreign controlled entity” (“FCE”); revise the distinction between foreign direct investment (“FDI”) and foreign portfolio investment (“FPI”); integrate